Will the world cup have an impact on stock markets?

With the World Cup just under a week away, Goldman Sachs has produced a detailed report on the World Cup and its economic impact.

It suggests that whilst stock markets are usually pretty difficult to predict, this summer’s World Cup will provide a few clues for some.

Its analysts show that for the country winning the World Cup in Brazil, it can expect its stock market to perform better than global equities by 3.5% in the month following the competition. In contrast, stock markets for the World Cup final runners-up tend to fall in comparison to global peers. Most World Cup runners-up have seen their stock markets suffer an average relative fall of 5.6% in the first three months after the event.

However, investors need to move quickly, as the post-victory rally does not last long. Indeed, the effect on both winners and runners-up is only temporary, and their markets return to normality after several months.

The Goldman Sachs report is based on statistics since 1974, when West Germany beat the Netherlands, and they appear to be fairly consistent over time. Only Brazil failed to outperform after winning in 2002, mainly because the country was in the midst of a recession and currency crisis.

Spain, however, managed to buck even that trend. Its stock market rallied 5.7% in the month after it won the World Cup for the first time in 2010 - even though the country, along with much of the rest of Europe, was in the midst of an economic and financial crisis.

Germany went even better after winning in 1974, with its post-event outperformance continuing beyond the first month to produce a 21.8% rise in its equity index in the following year.

The ultimate is to win the trophy and host the tournament as this leads to a further outperformance on that front in the first month after the event. This is certainly the goal for Brazil, this year's host and one of the favourites.

So what are England’s chances? The UK stock market is doing well in the run up to the tournament but unfortunately, Goldman Sachs reports that there is no ‘obvious trend’ linking strong stock markets pre-event and World Cup victory.

Another economist report, the PwC World Cup Index 2014, echoes this sentiment. It reports that economic factors, such as GDP growth and population, will not improve chances in Brazil. By way of contrast, a previous PwC report on the Olympics showed that there was a strong correlation between medal success and the economy. However, the PwC report suggests that England will fall foul of the “Group of Death” in the World Cup.  

As a riposte, we would point out that the PwC World Cup Index 2010 wrote off Spain, the ultimate winners and championed Brazil, who did not make the final!

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